The latest weekly report by the Energy Information Administration, covering the week ending December 28th, showed that US crude stockpiles grew by just 7000 barrels to end the week at 441.4 million barrels. The rise was disappointing for the market, which had forecast a more than 1 million barrel drawdown, though other factors kept price supported.

The report from the EIA also showed US gasoline inventories having risen by 6.9 million barrels over the week, far outperforming expectations of a 1.97 million barrel increase. Similarly, distillate stockpiles were also seen rising 9.6 million barrels over the week, again, sharply higher than the forecast 1.6-million-barrel build.

Further China/US Trade Talks Boosting Oil

Despite the unexpected, though admittedly minor, build in US crude inventories, crude prices have soared higher this year following news that US and China are to enter another round of trade talks. In a statement released by the Chinese Commerce Ministry on Friday, the Chinese government said that a further round of talks between the two sides will begin on January 7th/8th.

This comes as a relief to the market which is currently suffering from expectations of diminished growth over 2019. Recent declines in both US and Chinese manufacturing, with the latter having slipped into contractionary territory over the last month, have stoked concerns about the negative impact of the ongoing trade war. Given that China is the world’s largest importer of oil, any fears of a slowdown there, which have been building over recent months, can weigh heavily on oil prices.

OPEC Production Decreases Ahead of Official Output Cut

Crude oil prices have also been supported this week by positive news around OPEC. A Reuters survey released at the end of last week showed that supply from OPEC fell by 460k barrels per day over December last year. With OPEC due to begin its production cuts this month, news of a drawdown last month is a welcomed start. However, some industry analysts have cautioned that the majority of the decline in supply came from disruptions in Ira and Libya.

In emergency talks held at the end of last year, OPEC and a group of allied nations lead by Russia, agreed to cut production by over 1.2 million barrels per day starting in January and due to run for at least six months. However, the market has expressed concern about the ability of the group to effectively implement such cuts in a uniform way given the group’s historical difficulties with obedience.

Saudi Arabia Cuts Oil

However, there are positive signs as Saudi Arabia, the cartel’s de-facto leader, announced that it has slashed oil production and plans to reduce further over January. Saudi Arabia energy minister Khalid Al-Falih told reporters this week that the kingdom would cut oil production from 10.3 million barrels per day in December to 10.2 million barrels per day in January.

Technical Perspective

After trading down to test the structural resistance offered by a raft of prior swing lows at 42.25, just ahead of the completion of a large ABCD pattern, oil has since bounced sharply higher and is fast approaching a retest of resistance at the 50.96 level. Above here, the focus will be on a test of 55.91 and above there, a retest of the broken bullish trend line from 2015 highs.